Re: Advisory Opinion; N.C.G.S. § 58-19-15(f); Non-Exemption of Commissioner of Insurance from Article 3C, Chapter 143 of the North Carolina General Statutes

Dear Mr. Kolbe:

You requested our advice regarding the authority of the Commissioner of Insurance (hereinafter “the Commissioner”) to contract with consultants pursuant to N.C.G.S. § 58-1915(f). Your specific questions are as follows:

Must the Commissioner “follow any sort of bid process” in retaining the professionals listed in N.C.G.S. § 58-19-15(f)?

2. Are there limitations on what the retained professionals can be paid?

May the Commissioner pay travel and other related expenses to the professionals in excess of the maximum allowed for State employees?

Does it make a difference if the professional services contract is with a firm, not an individual?

N.C.G.S. § 58-19-15(f), which is included within the Insurance Holding Company System Regulatory Act, provides as follows:

The Commissioner may retain, at the acquiring person’s expense, any attorneys, actuaries, economists, accountants, or other experts not otherwise a part of the Commissioner’s staff as may be reasonably necessary to assist the Commissioner in reviewing the proposed acquisition of control.

Generally, contracts entered into by a State agency to obtain consultant services are Peter A. Kolbe October 3, 2001 Page 2

addressed in Article 3C of Chapter 143. Subsection (b) of N.C.G.S. § 143-64.20 mandates, in pertinent part, that “[n]o State agency shall contract to obtain services of a consultant or advisory nature unless the proposed contract has been justified to and approved in writing by the Governor of North Carolina . . ..” The Governor must make certain findings before granting written approval of a contract to obtain consultant services, including a finding “[t]hat the General Assembly has appropriated funds for such contract or that such funds are otherwise available.”

N.C.G.S. § 143-64.21(4). Another required finding is “[t]hat all rules and regulations of the Department of Administration have been or will be complied with.” N.C.G.S. § 143-64.21(5).

N.C.G.S. § 143-64.23, moreover, provides in pertinent part as follows:

No disbursement of State funds shall be made and no such contract shall be binding until the provisions of G.S. 143-64.21 and 143-64.22 have been complied with . . ..

(Emphasis supplied.)

N.C.G.S. § 58-2-25(a), with two exceptions, is consistent with the mandate of Chapter

143. N.C.G.S. § 58-2-25(a) provides in pertinent part as follows:

If the Commissioner considers it to be necessary for the proper execution of the work of the Department to contract with persons, except to fill authorized employee positions, all of those contracts, except those provided for in Articles 36 and 37 of this Chapter, shall be made pursuant to the provisions of Article 3C of Chapter 143 of the General Statutes.

(Emphasis supplied.)

We concluded in our August 24, 2001, advisory opinion that the clear and unambiguous language of N.C.G.S. § 58-65-131(e) exempts certain contracts with consultants from the requirements of Article 3C of Chapter 143, although N.C.G.S. § 58-2-25(a) fails to make an exception for contracts authorized under Article 65 of Chapter 58.

In direct contrast with N.C.G.S. § 58-65-131(e), N.C.G.S. § 58-19-15(f) omits language specifically exempting, from the requirements of Article 3C of Chapter 143, contracts with professionals retained by the Commissioner. N.C.G.S. § 58-2-25(a), moreover, makes no exception for contracts authorized under Article 19 of Chapter 58. It is our conclusion that contracts negotiated pursuant to N.C.G.S. § 58-19-15(f) are not exempt from the requirements of Article 3C of Chapter 143.

Article 3C does not mandate a comprehensive bidding procedure analogous to the procedure set forth in N.C.G.S. § 143-52, which is contained in Article 3 of Chapter 143. Article 3C, however, addresses the issue of competitive proposals. N.C.G.S. § 143-64-22 provides as Peter A. Kolbe October 3, 2001 Page 3

follows:

The rules of the Department of Administration shall include provisions to assure that all consultant contracts let by State agencies shall be made with other agencies of the State of North Carolina, if such contract can reasonably be performed by them; or otherwise, that wherever practicable a sufficient number of sources for the performance of such contract are solicited for competitive proposals and that such proposals are properly evaluated for award to the State’s best advantage.

(Emphasis supplied.)

Similarly, 1 N.C.A.C. 5D.0201 provides in pertinent part as follows:

State agencies shall acquire consultive services only when the contract is in the best interests of the State. In acquiring such services, competition shall be sought whenever practicable as determined by the Division of Purchase and Contract . . ..

(Emphasis supplied.)

Pursuant to 1 N.C.A.C. 5D.0204(3), an agency may “execute a negotiated contract(s)

without competitive proposals if the Division of Purchase and Contract and the Governor have determined that performance or price competition is not available . . . or that the contract price is too small to justify soliciting competitive proposals.” (Emphasis supplied.)

The appropriate response to your first question is that the Commissioner is not required to adhere to a bid process in retaining experts to assist in reviewing a proposed acquisition of control if either of two conditions is met. One condition is that the Division of Purchase and Contract and the Governor have determined that performance or price competition is not available. The other condition is that the Division of Purchase and Contract and the Governor have determined that the contract price is too small to justify soliciting competitive proposals.

It is our conclusion that the answer to your second question is “yes.” N.C.G.S. § 14364.21(3) provides that prior to granting written approval of a consultant contract, the Governor must find “[t]hat the estimated cost is reasonable as compared with the likely benefits or results . . ..”

In response to your third question, it is our conclusion that experts retained by the Commissioner under N.C.G.S. § 58-19-15(f) are not State employees. 1 N.C.A.C. 5D.0209 declares that “[n]o contract for consultant services shall create an employer-employee relationship between the State of North Carolina and the consultant.” The provisions of

to the retained experts. Travel and other related expenses should be addressed and resolved in the negotiated contract.

Finally, provided a “reasonable” standard is applied, we conclude that it is immaterial whether the professional services contract is with a firm or an individual. Consulting contracts do not distinguish between contracts with individuals and contracts with entities.

We hope that this advisory opinion will be useful to you. Please let us know if you have additional questions concerning this matter.